| KGK Gems Private Limited | ||||
| Rating outlook revised to 'Stable'; Rating reaffirmed | ||||
| Rating Action | ||||
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| 1 crore = 10 million | ||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
CRISIL Ratings has revised its outlook on the long term bank facilities of KGK Gems Private Limited (KGPL; part of the KGK group) to ‘Stable’ from ‘Negative’ while reaffirming the rating at 'CRISIL BBB-'
The revision in outlook reflects restoration in the business risk profile of the group, on the back of better than expected sales in fiscal 2021, which is expected to sustain over the medium term. Group’s consolidated revenue improved from by around 18% in fiscal 2021 to Rs. 3160.43 crores (from Rs. 2672.09 crores in FY2020) on back of healthy demand during H2 of fiscal 2021. Further, group has already reported revenue of around ~Rs.3,100 crores in the current year, November 2021 on the back of increased sales volumes supported by higher demand in the key markets.
The upsurge in spending on diamonds & jewellery in fiscal 2021 post September 2020, riding on a combination of pent-up demand and recovery in retail offtake on account of spending of savings by retails consumers in key markets such as the US and China helped in reducing the impact of Covid -19 pandemic in fiscal 2021. Further, demand in fiscal 2022 is supported majorly by India & US markets and China’s demand is also expected to spur up with Chinese new year coming up.
Improvement in operating margin and working capital cycle leading to better debt protection metrics and controlled gearing levels to remain key sensitivity over the medium term.
The rating continues to reflect the KGK group’s established market position backed by the experience of the promoters in the diamond industry, diversified revenue profile. These strengths are partially offset by large working capital requirement, moderate financial risk profile and susceptibility to volatility in diamond prices amidst intense competition. |
Analytical Approach: Consolidated CRISIL Rating has consolidated the business and financial risk profiles of KGK Diamonds (I) Private Limited (KDIPL), KGK Creations (India) Private Limited (KCIPL), KGK Creations Private Limited (KCPL) and KGK Gems Private Limited (KGPL) together referred to as KGK Group (KGK). This is because all these entities, have common promoters, and there are operational and financial linkages between these entities.
Unsecured Loans Unsecured loans to the tune of Rs 71.69 crores as on March 31, 2021 have been treated as 75% Equity and 25% debt as the same have exhibited a track record of non-withdrawal, are interest free, subordinated to bank borrowings and expected to remain in business over the medium term.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
The KGK group derives significant operational efficiency from its established market presence and the established relationships it enjoys with its suppliers and customers. The KGK group is association with major diamond mining companies which helps in consistent sourcing and distribution of diamonds in terms of volume and variety. The KGK group’s sightholder status from De Beers ensures healthy operational efficiency. Apart from De Beers, it also secures supplies from ALROSA & Rio Tinto, thus leading to a steady stream of rough diamonds and ease of inventory management. Proximity to the diamond producing regions has enabled the group to receive its required supply of high-quality rough diamonds even during times of supply disruption, leading to production efficiency. The group has a diversified revenue profile as seen by its wide geographical reach and product profile. The group is expected to maintain its healthy operational efficiency over the medium term, supported by the sight holder status and its established presence across key diamond markets.
Weaknesses:
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Liquidity: Adequate Liquidity is adequate indicated by cash accrual expected to be over Rs 60 crores which are sufficient against term debt obligation of ~Rs 12 crores over the medium term. In addition, it will provide support to fund incremental working capital requirements. While, bank limit utilisation is high at ~91 percent for the past twelve months ended October 2021, the liquidity is partially supported by cash and bank balance of ~Rs. 50 crores. Further, promoters are likely to extend support in the form of equity and unsecured loans to meet its working capital requirements and repayment obligations, in case of any exigencies. |
Outlook: Stable CRISIL Ratings believes the KGK group will continue to benefit over the medium term, on account of established market position and improved demand scenario in domestic and international market. Group’s business and financial risk profiles, especially debt protection metrics, are expected to improve over medium term. |
Rating Sensitivity factors Upward factors:
Downward factors:
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KGK Diajewels group, owned by the Kothari family, was set up in 1905 by the late Mr. Keshrimal Kothari. The group is engaged in cutting and polishing of diamonds, and manufactures diamond-studded jewellery.
KDIPL was originally set up as a partnership firm, KGK Enterprises, in 1981; the firm was reconstituted as a private limited company with the current name in 2009. The company is engaged in cutting and polishing of diamonds. KDIPL has been a De Beers sightholder since 1997, and has a long-term procurement contract with ALROSA since 2012. The company has also signed long term procurement contract with Rio Tinto in 2014. Hence, the company gets assured supply of rough diamonds from major mining companies.
KCIPL, set up in 2003, manufactures diamond-studded jewellery; it caters to both domestic & international markets.
KCPL, set up in 1997, manufactures and exports diamond; the company is an export-oriented unit.
KGPL, trades in smaller carat diamonds and majorly supplies to the group’s jewellery divisions.
The KGK Diajewels Group derives around ~80 per cent of its revenue from its diamond business, and the balance ~20 per cent from its jewellery business. The chairman of the group is Mr. Navrattan Kothari. |
Key Financial Indicators (Consolidated for KDIPL, KCIPL, KCPL & KGPL)
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
& - Includes sub limit of Packing Credit of Rs. 12.50 crore & also includes sub limit of Packing Credit of Rs. 50.0 crore against DDA bills under collection |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||
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Criteria Details
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